This book is entitled Financial Recovery in a Fragile World. It might better have been called “Financial Recovery in a Frightening World,” as co-authors Al Emid, Robert Ironside and Evelyn Jacks methodically expose the horrific state of most of the global economy. I found myself left with the feeling that there are few places to hide from the world’s financial jeopardy and little to be done to protect oneself.
That isn’t, of course, the authors’ intention. In fact, they intend quite the opposite: to help you, the reader, gain a better understanding of what’s happening in the world’s major economies, so you and your clients can adjust your traditional approaches to managing your financial affairs. The book does succeed in that objective.
Overall, the book is a reasonable effort to provide helpful information. Unfortunately, any book on this subject becomes somewhat outdated as soon as it is published, because the world changes so quickly. (Since the authors did their research, for example, Greece’s debt has climbed to 180% of GDP from 147%, with a promise to lower it to 120% as a condition of a bailout.)
I am not sure the book fully lives up to its subtitle, How to Survive and Thrive in Uncertain Times, because the recommended strategies should be common sense among investors.
Part 1 of the book asks: “How fragile is our world?” then proceeds to answer its own question, first by reminding us of the chain of events that began on September 15, 2008 — the day U.S.-based investment bank Lehman Brothers Holdings Inc. filed for bankruptcy protection and the whole house of cards built on debt was exposed.
Today, 12 major countries exceed the 85% debt/GDP ratio that signals the transition from “good” debt to “bad.” Some countries, such as Japan (at 200%) are a surprise; Greece (at 147%) is not. The European saviour nations of France and Germany (at 94% and 87%, respectively) make the reader a little less optimistic of eurozone fiscal stabilization, let alone a recovery, anytime soon.
Lest we feel too cocky, note that Canada sits just below the boundary line, with total government debt equal to 84% of GDP. And just because we survived the economic meltdown of 2008-09, we should not assume that we can survive the next global calamity.
Part 2 of the book tells us that aside from world economic conditions, there are other factors that will influence the success of investors’ investment strategies. These all will be familiar to financial advisors, but perhaps not to your clients. The first is a primer on interest rates, including a description of how the nominal rate that clients see posted, for example, on a bond, is actually a combination of the “risk-free rate” allowance for inflation and the risk profile of the issuer or the financial instrument.
Part 3 is entitled “Real Wealth Management,” a term trademarked by the publisher. This is the how-to section of the book. Here, we find emphasis on three key sources of information: personal net-worth statement, tax return and financial plan.
There are suggestions for structuring spending between non-discretionary and discretionary, and investing for income vs growth. Not surprising, given that Jacks is perhaps Canada’s most prolific writer on the subject of taxes, there is considerable emphasis on the tax treatment of investments and achieving the best possible after-tax return.
Part 4 is a summation of the key lessons presented:
> There are no quick fixes. It will be a bumpy road to recovery that is still fraught with danger.
> Get your own financial house in order. Pay down debt and work with an advisor to create a financial plan.
> Organize investments for maximum tax advantage.
> Diversify investments. Consider interest rate direction, inflation and economic conditions.
If you want to become better informed about world economic conditions, or you want your clients to, so you can have more meaningful conversations about investment strategies, this book could be a practical reference. IE